australian small cap portfolio -...

Australian Small Cap PortfolioQuarterly Update December 2015

Investment Growth of $10,000

Time Period: 1/02/2011 to 31/12/2015

12/2011 06/2012 12/2012 06/2013 12/2013 06/2014 12/2014 06/2015 12/20156,000.0

8,000.0

10,000.0

12,000.0

14,000.0

16,000.0

18,000.0

20,000.0

Small Cap Portfolio S&P/ASX Small Ordinaries TR AUD

Small Cap Portfolio - Top 10 Holdings

Portfolio Date: 31/12/2015

Weighting %

Chorus LtdCash AccountHotel Property InvestmentsPlatinum Asset Management LtdAbacus Property GroupNIB Holdings LtdVeda Group LtdPact Group Holdings LtdMYOB Group LtdAinsworth Game Technology Ltd

9.17.36.66.35.95.65.55.15.15.0

Morningstar Style Box

0.0 0.0 0.0

15.5 28.8 21.2

12.9 8.1 13.5

LargeM

idSm

all

Value Blend Growth

Equity Style %

Equity Style Value 28.5

Equity Style Core 36.9

Equity Style Growth 34.7

Joel BloomerSenior Portfolio Manager+612 9276 [email protected]

Portfolio Overview

The Small Cap Portfolio returned 13.0% in the December quarter, beating the S&P/ASX Small Ordinaries Accumulation Index's 11.3%. The portfolio's return for the full year was 16.1%, well ahead of the 10.2% benchmark return. Our overweight to telecommunications was the largest industry contributor in the quarter while our underweight to household and personal products was the largest detractor. We're pleased with performance in what was a tumultuous year for markets generally.

There is no shortage of phenomena to worry about at present. Plummeting commodity prices, weakeninghome prices, one of the worst starts to a year for equity markets, smouldering currency wars, and a planet that is literally the hottest it has ever been. Anyone not at least mildly uncomfortable is blissfully unaware. This uncertainty is typically an environment where value is discovered, but the pain has been concentrated in lower quality sectors while many of the companies we'd like to own remain stubbornly expensive.

Commodity prices are an important part of Australias well-being. The positives of this are relatively well-known expanded employment, capital inflows, asset price appreciation, and economic growth to name a few. What a difference a year or two can make, as we now experience the other side of the coin. Expanding commodity production at any cost turns out to have been an egregious and permanent destruction of capital for many firms. Seemingly limitless demand from China for raw materials has actually started to decline in spots, turning the commodity industry, and countries dependent on it, upside down to varying degrees. It is no surprise to us that the resources sector is volatile and lacking in competitive advantages (economic moats), but the sheer voracity of the demise has surprised even our generally sceptical view of the space.

With the Australian equity market down a fair amount, we are doing what we should given our long-term valuation-driven approach looking for mispriced opportunities. Unfortunately, less attractive businesses have driven much of the decline supplemented in no small part by the big four banks which are still uncomfortably large index constituents and facing problems of their own, such as regulation, rising bad debts, and a tenuous housing market. Meanwhile, the more defensive quality companies have held or even gained ground. Healthcare, property, and industrials with foreign currency earnings, for example, seem to have gone from loved to uncomfortably crowded trades in some instances. Nonetheless, we stay the course and search for value hoping for uncertainty to put sales tags on our watch list companies.

The upcoming earnings season could be one of the more interesting compared to the last few years, given the dislocations that have already occurred and others that seem on our doorstep. A few issues we are watching closely that might stir value in the not-to-distant future are tangential impacts of the resources collapse, a potential disorderly weakening in home prices, and disruptive currency fluctuations.

Currency is likely to be a critical factor in Australia during the next couple of years. Recent inflation figures suggest wages are stagnating while overall inflation rises, partly due to the things we import becoming more expensive as a result of Aussie dollar weakness. A lower Aussie dollar is often seen as a panacea fix, but going from currency strength to weakness and its myriad implications can rarely be smooth, not to mention there isn't much left of Australia's manufacturing base to be restarted.

Tourism from China has no doubt grown, but devaluation of the yuan seems a reasonable stimulus to the slowing Chinese economy. This could not only slow the flow of sightseers but could also compound theslowing Australian housing market, particularly in light of stricter Chinese capital controls. The old adage "May we live in interesting times" has been granted in spades as a belated gift. We look forward to new investment opportunities in the year ahead.

THIS REPORT HAS BEEN PRODUCED USING PRESENTATION STUDIO, A MODULE OF MORNINGSTAR DIRECTAny Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar or your adviser. 2015 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or class service have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement (Australian products) or Investment Statement (New Zealand products) before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial products future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO").

Australian Small Cap Portfolio Quarterly Update December 2015

Small Cap Portfolio - Complete List of Holdings


CodeStyle Box

EconomicMoat

FairValue

Uncertainty

PortfolioWeight

%

Chorus LtdCash AccountHotel Property InvestmentsPlatinum Asset Management LtdAbacus Property GroupNIB Holdings LtdVeda Group LtdPact Group Holdings LtdMYOB Group LtdAinsworth Game Technology LtdAutomotive Holdings Group LtdOzforex Group ltdSpark Infrastructure GroupALE Property GroupFlexiGroup LtdVirtus Health LtdMighty River Power LtdGenesis Energy LtdGreencross LtdTrade Me Group LtdFolkestone Education TrustNew Hope Corp LtdAWE Ltd

CNU None High 9.17.3

HPI None Medium 6.6PTM Narrow Medium 6.3ABP None Medium 5.9NHF Narrow Medium 5.6VED Wide Medium 5.5PGH None Medium 5.1

MYO Narrow Medium 5.1AGI Narrow High 5.0

AHG Narrow High 4.9OFX None High 4.8SKI None Medium 4.0LEP None Medium 3.7FXL None High 3.4VRT None High 3.2

MYT Narrow High 2.9GNE Narrow High 2.8GXL None High 2.7TME Wide Medium 2.6FET Narrow Medium 2.0

NHC None Very High 1.0AWE None High 0.6

Holdings-Based Style Trail

Time Period: 31/01/2013 to 31/12/2015

Mic

roSm

all

Mid

Larg

eGi

ant

Deep-Val Core-Val Core Core-Grth High-Grth


Holdings-Based Style Map

Mic

roSm

all

Mid

Larg

eGi

ant

Deep-Val Core-Val Core Core-Grth High-Grth


Note dividends for Chorus, Spark New Zealand and Trade Me are imputed for New Zealand residents. Australian residents receive unfranked dividends with a supplementary payment.Morningstar Investment Strategy Committee members own the following securities held by the portfolio: AGI, MYO

The above chart shows the portfolio and index style mix. The shaded area is the region in which 75% of the portfolio's holdings fall.

The above chart shows the portfolio and index style mix over time, the smallest dot representing the earliest date.



Transactions in the Quarter

Increased Abacus Property Group position by 1% to 5.8%While not presenting as materially undervalued, Abacus should provide stable value with a decent dividend yield. Abacus is a property investment and funds management group with interests in property lending, joint ventures and development. It has a strong track record of acquiring mispriced assets, actively managing them to increase value and then either selling or recycling them into funds management products. Annuity-style earnings from asset ownership across several property types are expected to comprise 60% to 70% of ongoing EBITDA.

Increased Ainsworth Gaming Technology Ltd position by 1% to 5.3%Ainsworth has hit a soft patch in business momentum as competitors seem to be hitting on all cylinders. Our take is that this will normalise over time as new products gain favour with clients. Ainsworth is an electronics gaming machine manufacturer, boasting a narrow economic moat furnished by its portfolio of licences to sell into various jurisdictions.

Initiated 2% position in Folkestone Education TrustFolkestone offers above-average quality in the small cap REIT space, brings diversity in our property type exposure, and offers a dividend yield which should prove stable over time. It is an externally managed child-care REIT owning about 345 properties in Australia and 51 in New Zealand. Folkestone is purely a property owner and does not operate the underlying child-care businesses.

Initiated 3% position in Genesis Energy and 3% position in Mighty River PowerThe New Zealand generators are offering high yields along with attractive potential for growth, so we take a position in two of the larger players available on the ASX. Genesis Energy is a vertically integrated electricity generator and retailer, accounting for 17% of New Zealand's total electricity output. Mighty River Power is predominantly a renewable electricity generator accounting for 17% of New Zealand's total electricity output. The market is dominated by four major electricity companies, providing an attractive landscape supportive of solid cash flow and returns. However, the medium-term outlook for the electricity sector is not very promising because of excess supply and sluggish demand, which will temper operating income growth in the next few years, creating a reasonably attractive entry point.

Initiated 2% position in Greencross LimitedThere is quite a bit of uncertainty around Greencross given a number of executive departures and its aggressive growth through consolidation strategy. These are valid concerns but we feel they're largely priced into the shares. Our smaller starting position leaves capacity to average into an otherwise attractive industry if the share price continues to weaken.

Reduced OzForex Group Ltd position by 2% to 5%OzForex is undergoing due diligence by Western Union prior to a potential acquisition in the 3.503.70 per share price range. We're inclined to think the deal will be consummated but sell part of our stake now to hedge against the preliminary offer being withdrawn which would likely cause a sharp fall in the share price. If the deal does fall through, we're happy to continue owning this high potential firm.

Exited 6.8% position in iSentiaiSentia has been a quick contributor to performance of the portfolio, appreciating rapidly since listing less than two years ago. While we see runway for continued growth, the current share price seems to price in a best-case scenario outlook.

Exited 4.4% position in SirtexSirtex has been a stellar contributor to the portfolio for quite some time but we exit the position as it will enter the S&P/ASX 100 Index at the next rebalance, putting it outside the Small Cap Equity Portfolio's mandate.

Asset Allocation


%

Stock 92.7

Cash 7.3

Total 100.0

Equity Country Exposure


%

Australian Shares 92.7

Cash 7.3

Total 100.0

Equity Sectors (GICS)


%

Financials 43.7

Telecom Services 14.9

Consumer Discretionary 14.2

Industrials 6.2

Energy 1.9

Materials 5.8

Healthcare 6.7

Utilities 6.5

Total 100.0

Portfolio Fundamentals

Display Benchmark 1: S&P/ASX Small Ordinaries TR AUD

Inv Bmk1 Cat Avg

Average Market Cap (mil)

P/E Ratio (TTM)

Debt to Capital % (TTM)

ROA % (TTM)

ROE % (TTM)

1,095.4

15.1

25.1

5.3

9.6

1,117.9

16.6

23.9

9.2

14.4

1,008.4

16.1

36.2

10.8

20.0



Quarter Performance

The Small Cap Equity Portfolio returned 13.0% in the December quarter, beating the S&P/ASX Small Ordinaries Accumulation Index's 11.3%. Our overweight to telecommunications was the largest industrycontributor in the quarter while our underweight to household and personal products was the largest detractor. Chorus, iSentia, and Ozforex were the largest contributors in the quarter, while Ainsworth, MYOB and Blackmores were the largest detractors.

Contributors:Chorus (overweight) benefitted handsomely from a favourable pricing decision by the New Zealand Commerce Commission, or NZCC, allowing it to charge a higher price for access to its telecommunications infrastructure. Prior views from the NZCC seemed uneconomic, and therefore unsustainable, to us, so we were pleased to see a revised view send the shares significantly higher. After a challenging couple of years as a result of regulatory uncertainty, Chorus is now better placed to manage its future cash flow which will likely include a reinstated dividend, in our opinion.

iSentia (overweight) entered the S&P/ASX 200 Index which is often associated with an increase in share price as indexes rebalance and equity managers become more aware of the stock. In addition, technology-related firms in general have enjoyed significant support. We exited the shares as they appeared to price in an overly rosy outlook.

OzForex (overweight) is undergoing due diligence by U.S.-listed Western Union prior to a possible acquisition. Although we're fans of the business, the indicative price range is fair in our view. There should be more news on this front in the first quarter of 2016.

Detractors:Ainsworth (overweight) has lost investor support due to a soft patch in business momentum just as competitors seem to be hitting on all cylinders. Our take is that this will normalise over time as new products gain favour with clients although the timing is uncertain.

MYOB (overweight) shares sold-off with the rest of the market, potentially due to general economic concerns and the firm's above-market multiple. We think the stock still offers an attractive growth profile as MYOB seeks to move clients from desktop-based to cloud solutions.

Blackmores (underweight) has had a stratospheric run as demand for its product from China and the multiple the market is willing to pay for that growth increases rapidly.

Risk-Reward

Time Period: 1/02/2011 to 31/12/2015

Std Dev

0.0 3.0 6.0 9.0 12.0 15.0 18.0

-5.0

-1.0

3.0

7.0

11.0

15.0

19.0 Small Cap Portfolio

S&P/ASX Small Ordinaries TR AUD

Retu

rn

Small Cap Portfolio - Market Performance

Time Period: 1/02/2011 to 31/12/2015

Inv Bmk1

Up Period Percent

Down Period Percent

Best Month

Worst Month

Best Quarter

Worst Quarter

Up Capture Ratio

Down Capture Ratio

50.85

49.15

9.81

-10.61

14.98

-15.30

100.00

100.00

69.49

30.51

7.47

-8.40

14.80

-8.11

96.34

19.67

Risk

Time Period: 1/02/2011 to 31/12/2015

Inv Bmk1

Return % pa

Std Dev

Downside Deviation

Alpha

Beta

R2

Sharpe Ratio (arith)

Tracking Error

-2.12

15.38

-0.37

0.00

0.00

1.00

100.00

0.00

16.05

11.19

3.75

14.83

0.61

70.62

1.12

8.52

Performance Relative to Peer Group (one month lag)Peer Group (5-95%): All Managed Investments - Australia - Equity Australia Mid/Small Blend

Top Quartile 2nd Quartile 3rd Quartile Bottom Quartile

-6.0

4.3

14.5

24.8

35.0

YTD 1 year 3 years Since inception


Retu

rn



Sector and Industry Weightings Analysis

The Small Cap Portfolio remains heavily overweight the financials and telecommunication services sectors and heavily underweight the industrials and materials sectors. The large divergence in sector exposures between our portfolio and the benchmark index reflects which sectors tend to have the better-quality, lower-risk businesses, and the more attractive outlooks and valuations.

The large overweight position in the financials sector reflects stakes in diversified financials and property. The latter totals 18% of the portfolio, and have highly defensive earnings, particularly Hotel Property Investments and ALE Property Group, which benefit from long leases to strong tenants. These core holdings have been major contributors to the portfolio's long-term outperformance and stability.

We have a large overweight position in the telecommunication services sector. These firms have defensive earnings and relatively attractive long-term tailwinds. The portfolio holds Spark New Zealand and Chorus.

The portfolio's largest underweight position is in the materials sector. Our primary direct exposure to the materials sector is Pact Group Holdings, a manufacturer of rigid plastic packaging for a wide range of drink, food, household and cosmetic products, which could be considered more like an industrials business than a materials operation. We continue to have limited exposure to pure resources stocks, as most of those firms in the small-cap space lack quality assets.

The portfolio is also underweight the industrial sector, which is mainly as a result of the avoidance of companies servicing the mining and oil and gas industries. Avoiding these stocks has been an important contributor to our outperformance of the benchmark in recent years. We remain wary of these generally low-quality firms despite huge stock price falls as resources capital expenditure might remain weak for some time, presenting a major risk to their profitability and, in some cases, viability.

GICS Industry Group Weights Relative to Benchmark

Telecommunication Services

Diversified Financials

Real Estate

Utilities

Insurance

Health Care Equipment and Services

Technology Hardware and Equipment

Retailing

Banks

Energy

Automobiles and Components

Consumer Durables and Apparel

Food and Staples Retailing

Consumer Services

Transportation

Commercial Services and Supplies

Household and Personal Products

Capital Goods

Pharmaceuticals and Biotechnology

Food, Beverage and Tobacco

Software and Services

Media

Materials

-12.0 -4.0 4.0 12.0 20.0

9.4

8.9

6.5

5.0

2.8

0.4

-0.1

-0.3

-0.8

-0.9

-0.9

-1.1

-1.2

-1.3

-1.7

-2.4

-2.6

-2.7

-3.5

-4.1

-5.6

-5.9

-9.1

GICS Sector Weights Relative to Benchmark14.2

22.7

0.08.3

1.92.6

43.721.5

6.77.4

6.212.6

5.814.4

0.06.0

14.93.8

6.50.6

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0

Consumer Discretionary

Consumer Staples

Energy

Financials

Healthcare

Industrials

Materials

Technology

Telecom Services

Utilities




Selection Effects

Time Period: 1/10/2015 to 31/12/2015

Underperform Outperform

Overweight

Underw

eightRe

lativ

e W

eigh

t

Relative Return

9.00

4.50

0.00

-4.50

-9.00

-100.00 -80.00 -60.00 -40.00 -20.00 0.00 20.00 40.00 60.00 80.00 100.00

1514

13

12

11

10

9

8

7

65

4

3

21

15 1413

12

11

10

9876

5

4

3

2

1

Best Selections Investment Type Weight +/- Return +/- Effect

1 Chorus Ltd Stock 7.52 45.01 3.19

2 iSentia Group Ltd Stock 4.21 12.18 1.15

3 Ozforex Group ltd Stock 5.82 13.36 0.91

4 FlexiGroup Ltd Stock 2.50 20.48 0.47

5 Platinum Asset Manageme... Stock 5.30 8.00 0.42

6 Mesoblast Ltd Stock -0.45 -52.80 0.29

7 Liquefied Natural Gas Ltd Stock -0.54 -48.60 0.28

8 Austal Ltd Stock -0.58 -41.57 0.27

9 Ardent Leisure Group Stock -0.97 -24.76 0.26

10 Sirtex Medical Ltd Stock 1.83 10.98 0.25

11 Select Harvests Ltd Stock -0.60 -34.91 0.25

12 Virtus Health Ltd Stock 2.95 8.36 0.24

13 Dick Smith Holdings Ltd Stock -0.15 -83.83 0.22

14 GWA Group Ltd Stock -0.53 -31.51 0.19

15 SMS Management & Techn... Stock -0.26 -52.20 0.17

Worst Selections Investment Type Weight +/- Return +/- Effect

1 Ainsworth Game Technolog... Stock 5.63 -29.56 -1.77

2 MYOB Group Ltd Stock 5.37 -15.18 -0.87

3 Blackmores Ltd Stock -1.74 38.01 -0.61

4 Abacus Property Group Stock 5.10 -10.40 -0.51

5 Metcash Ltd Stock -0.97 42.46 -0.36

6 BT Investment Managemen... Stock -1.49 25.64 -0.34

7 Hotel Property Investments Stock 7.07 -4.23 -0.32

8 Veda Group Ltd Stock 4.16 -6.48 -0.29

9 Bega Cheese Ltd Stock -0.65 45.10 -0.28

10 ALE Property Group Stock 4.27 -6.22 -0.27

11 APN Outdoor Group Ltd Stock -0.68 47.10 -0.27

12 Pact Group Holdings Ltd Stock 5.04 -5.23 -0.27

13 Bellamy's Australia Ltd Stock -0.43 61.81 -0.24

14 AWE Ltd Stock 0.61 -30.70 -0.20

15 Syrah Resources Ltd Stock -0.47 47.19 -0.20

Returns Relative to Benchmark

As of Date: 31/12/2015

3 month YTD 1 year 3 years Since Inception* (28/01/2011)-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

17.5

13.0

16.1 16.1 16.0 15.1

11.310.2 10.2

1.7

-2.1


Retu

rn

Performance measures are expressed net of fees, gross of costs and taxes are deducted. Dividends are reinvested in the portfolio. The performance displayed is for the Morningstar Small Cap Equities Portfolio and represents modelled performance only. This performance will differ from actual performance depending on factors such as transaction timing and any divergence from constituent weightings.* Where inception date is not the beginning of a month, returns are calculated using a start date which is the first day of the month following inception.



Cumulative Attribution Effects

Time Period: 1/01/2015 to 31/12/2015

GICS Industry GroupCumulative Attribution Effects

Cumulative Allocation EffectCumulative Selection EffectCumulative Active Return

Attribution EffectsAllocation EffectSelection EffectActive Return

Attribution Effect %12.00

9.00

6.00

3.00

0.00

-3.00

-6.00

6.00

3.00

0.00

-3.00

1-31-2015 2-28-2015 3-31-2015 4-30-2015 5-31-2015 6-30-2015 7-31-2015 8-31-2015 9-30-2015 10-31-2015 11-30-2015 12-31-2015

Allocation Effects

Time Period: 1/10/2015 to 31/12/2015

Underperform Outperform Overweight

Underw

eightRe

lativ

e W

eigh

t

Relative Return

12.00

6.00

0.00

-6.00

-12.00

-45.00 -36.00 -27.00 -18.00 -9.00 0.00 9.00 18.00 27.00 36.00 45.00

5

4

3

2

1

54

3

2

1

Best Weighting Weight +/- Return +/- Effect1 Telecommunication Services 8.42 14.28 1.222 Diversified Financials 10.58 9.65 1.033 Capital Goods -3.23 -20.12 0.684 Energy -0.92 -19.37 0.215 Transportation -1.79 -9.21 0.17

Worst Weighting Weight +/- Return +/- Effect1 Unclassified 5.37 -15.18 -0.872 Household and Personal Products -2.33 20.73 -0.473 Food and Staples Retailing -0.97 42.46 -0.364 Media -5.58 6.28 -0.365 Food, Beverage and Tobacco -3.83 6.03 -0.23



Equity Sectors (GICS)

Time Period: 1/01/2013 to 31/12/2015

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

06/2013 12/2013 06/2014 12/2014 06/2015 12/2015

Energy % Materials % Industrials %Consumer Discretionary % Consumer Staples % Healthcare %Financials % Information Technology % Telecom Services %Utilities %

Equity Style Valuation

Time Period: 1/01/2013 to 31/12/2015

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

06/2013 12/2013 06/2014 12/2014 06/2015 12/2015

Value % Core % Growth %

Equity Market Capitalization

Time Period: 1/01/2013 to 31/12/2015

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

06/2013 12/2013 06/2014 12/2014 06/2015 12/2015

Giant % Large % Mid %Small % Micro %



Portfolio Mandate and Typical PositioningInvestment Methodology and Process

Small Cap Portfolio StrategyThe Australian Small Cap Portfolio is an actively managed concentrated portfolio consisting of our best small cap ideas outside of the S&P/ASX 100 with liquidity restraints. The portfolio is constructed with a focus on long term fundamental value and bias toward businesses with sustainable competitive advantages (economic moats) and predictable cash flows.

Total return from the Small Cap Portfolio will tend to be driven by both capital appreciation and dividend yield with the mix dependent on the opportunities available. The Small Cap Portfolio will tend to hold a few more positions than the other Morningstar portfolios to allow sufficient diversification. High quality companies are less common in the small cap universe, causing this portfolio to holder fewer companies with an economic moat than is preferred, but it will still generally have a quality bias relative to its benchmark. Similarly, the Small Cap Portfolio may on average have higher uncertainty ratings than other Morningstar portfolios which allows pursuit of greater reward opportunities, with likely greater volatility.

Investment Strategy Committee ProcessMorningstars equity portfolios are managed by their portfolio managers and our eight-person investment strategy committee which comprises selected members of the equities research team. Committee meetings reinforce rigor and consistency of research methodology through collaborative debate on proposed andexisting holdings. A constant feedback loop between Morningstars research team and investment committee members leverages team strengths in vetting stock calls and portfolio holdings. This constant cycle strengthens team culture, expertise and ratings, minimising key-person risk and common behavioural pitfalls.

The committee is experienced and well-resourced, ensuring stability and succession planning. Representation from each sector team ensures cross-market expertise. Committee members have average industry experience of 17 years and average tenure with Morningstar of 10 years. We are not averse to an occasional portfolio manager change, as the driving forces behind our portfolio construction process are our bottoms-up research and investment committee overlay.

In-depth research by our large, global, and experienced analyst team is the bedrock of our portfolio management process and facilitates our high conviction investments. We have over 100 equity and credit analysts globally, covering around 1,700 stocks and 700 debt issuers, making us one of the largest independent research teams in the world. Our 20 Australian and New Zealand-based analysts cover about 230 Australian and New Zealand stocks which includes extensive research reports, timely event analysis, actionable special reports, and deep discounted cash flow modelling on every company. This is complimented by our local credit research to help us assess the complete capital structure and preserve capital while pursing upside opportunities.

Investment Committee Feedback Loop


This document is issued by Ibbotson Associates Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (Ibbotson). Ibbotson is a member of the Morningstar group of

companies (Morningstar). 2015 Morningstar, Inc. All rights reserved. In compiling this document, Ibbotson has relied on information and data supplied by Morningstar and other

third party information providers. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson, Morningstar nor their third party

information providers accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included.

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar or your adviser. Past performance is not a reliable

indicator of future performance. Neither Ibbotson nor Morningstar guarantees the performance of any investment or the return of capital. The information provided is general advice only

has been prepared without reference to an individual persons objectives, financial situation or particular needs. You should consider the advice in light of these matters and if

applicable the relevant disclosure document before making any decision to invest. To obtain advice tailored to your situation, individuals should contact a professional financial adviser.

For a copy of the relevant disclosure document, please contact our Distribution Team on 02 9276 4550. Some material is copyright and published under licence from ASX Operations

Pty Ltd ACN 004 523 782.

Portfolio Overview An actively managed portfolio of Australian equities outside of the S&P/ASX 100, focusing on companies with sufficient

liquidity trading at relatively attractive valuations.

Sector Specialist Managed Accounts

Asset Allocation Return Objective Time Horizon Risk Profile

Growth

Assets %

Defensive

Assets %

Australian Shares

Core

S&P/ASX 200 Accumulation Index 7 years High 100 0

Australian Shares

High Yield

S&P/ASX 200 Accumulation Index 7 years High 100 0

Australian Shares

Small Cap

S&P/ASX Small Ordinaries Accumulation Index 7 years Very high 100 0

Property

S&P/ASX 200 REITs Accumulation Index 5 years High 100 0

Global Shares MSCI ACWI Accumulation Index

(Net Dividends Reinvested)

7 years High 100 0

Cash

Bloomberg Australian Bond Bill Index 2 years Very low 0 100

This document is issued by Ibbotson Associates Australia Limited (ABN 54 071 808 501, AFS Licence No. 228986) (Ibbotson). Ibbotson is a member of the Morningstar group of

companies (Morningstar). 2015 Morningstar, Inc. All rights reserved. In compiling this document, Ibbotson has relied on information and data supplied by Morningstar and other

third party information providers. Whilst all reasonable care has been taken to ensure the accuracy of information provided, neither Ibbotson, Morningstar nor their third party

information providers accept responsibility for any inaccuracy or for investment decisions or any other actions taken by any person on the basis or context of the information included.

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar or your adviser. Past performance is not a reliable

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Diversified Managed Accounts

Asset Allocation Return Objective Time Horizon Risk Profile

Growth

Assets %

Defensive

Assets %

Defensive

CPI+ 0.75% Rolling 1 year Low 15 85

Conservative

CPI+ 1.0% Rolling 3 years Low to Medium 30 70

Balanced

CPI+ 2.5% Rolling 5 years Medium 50 50

Growth

CPI+ 3.5% Rolling 7 years Medium to High 70 30

High Growth

CPI+ 4.5% Rolling 9 years High 85 15

High Growth Plus

CPI+ 5.0% Rolling 10 years High 95 5

Diversified Income

CPI+ 2.0% Rolling 4 years Medium 40 60

australian small cap portfolio -...

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